This blog captures interesting news items from around the world for those strained by information overload and yet need to stay updated on global events of significance. The news items displayed are not in order of merit. (The blog takes a weekly off -- normally on Sunday -- and does not appear when I am on vacation, travelling, or otherwise busy.)
Joe A Scaria
Former Senior Assistant Editor, The Economic Times, India

Tuesday, April 19, 2016

1 Japan exports, imports fall (San Francisco
Chronicle) Japan's exports fell for a sixth straight month in March, sapped by
weak shipments of machinery and chemicals, though a sharper decline in imports
helped push the trade surplus to its highest level in more than five years.

Imports of coal, oil, food and machinery dropped.
The change was exaggerated by a recent 10 percent surge in the yen's value
against the US dollar, to about 109 yen. That makes import costs lower in yen
terms. Japan also is importing more, lower cost food items from China, while
reducing imports of US-produced soybeans, meats and grains.

Slack global demand and the slowdown in China,
Japan's second-biggest export market after the US, have dragged on exports,
slowing the recovery. The slower growth in China has also hit other Asian
markets, hurting Japan's exports to other countries in the region. Recent
improvements in the global outlook will likely lift exports in coming months,
economists say.

2 Intel to cut 12,000 jobs (BBC) US tech giant Intel
is shedding 12,000 jobs as it seeks to cut reliance on the declining personal
computer market. The maker of computer chips will take a $1.2bn charge to cover
restructuring costs. The job cuts, about 11% of Intel's workforce, will be made
over the next 12 months.

Intel said it wants to "accelerate evolution
from a PC company to one that powers the cloud and billions of smart, connected
computing devices". The world's largest computer chipmaker also lowered
its revenue forecast for the year. The California-based company has been
focusing on its higher-margin data centre business as it looks to reduce its
dependence on the slowing PC market.

Global personal computer shipments fell 11.5% in the
first quarter, research firm IDC said. The cuts were "not a
surprise," said NPD analyst Stephen Baker. "For everybody who has
made their bed in old tech, trying to lie in it is pretty uncomfortable right
now."

3 The problem with negative interest rates (Joseph
Stiglitz in The Guardian) An underlying problem that has plagued the global
economy is lack of global aggregate demand. It should have been apparent that
most central banks’ pre-crisis models were badly wrong. They continued to use
the old discredited models, perhaps slightly modified. In these models, the
interest rate is the key policy tool, to be dialed up and down to ensure good
economic performance. If a positive interest rate doesn’t suffice, then a
negative interest rate should do the trick.

It hasn’t. In many economies – including Europe and
the US – real (inflation-adjusted) interest rates have been negative, sometimes
as much as -2%. And yet, as real interest rates have fallen, business
investment has stagnated.

Clearly, the idea that large corporations precisely
calculate the interest rate at which they are willing to undertake investment is
absurd. More realistically, large corporations are sitting on hundreds of
billions of dollars – indeed, trillions if aggregated across the advanced
economies – because they already have too much capacity. Why build more simply
because the interest rate has moved down a little?

The small and medium-size enterprises (SMEs) that
are willing to borrow couldn’t get access to credit before the ECB went
negative, and they can’t now. Simply put, most firms – and especially SMEs –
can’t borrow easily at the T-bill rate. They don’t borrow on capital markets.
They borrow from banks. And there is a large difference (spread) between the
interest rates the banks set and the T-bill rate.

It may come as a shock to non-economists, but banks
play no role in the standard economic model that monetary policymakers have
used for the last couple of decades. Of course, if there were no banks, there
would be no central banks, either.

A decrease in the real interest rate will make
little or no difference. Negative interest rates hurt banks’ balance sheets,
with the “wealth effect” on banks overwhelming the small increase in incentives
to lend. Unless policymakers are careful, lending rates could increase and
credit availability decline.

There are three further problems. First, low
interest rates encourage firms to invest in more capital-intensive
technologies, resulting in demand for labour falling in the longer term, even
as unemployment declines in the short term. Second, older people who depend on
interest income, hurt further, cut their consumption. Third, the search for
yield implies that many investors will shift their portfolios toward riskier
assets, exposing the economy to greater financial instability.

What central banks should be doing is focusing on
the flow of credit, which means restoring and maintaining local banks’ ability
and willingness to lend to SMEs. Instead, throughout the world, central banks
have focused on the systemically significant banks, the financial institutions
whose excessive risk taking and abusive practices caused the 2008 crisis.

Of course, even in the best of circumstances,
monetary policy’s ability to restore a slumping economy to full employment may
be limited. But relying on the wrong model prevents central bankers from
contributing what they can – and may even make a bad situation worse.